Netflix attacks Comcast’s TWC deal

Matthew Garrahan

Thursday, 24 Apr 2014 | 9:57 PM ETFinancial Times

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Netflix has traded barbs with Comcast over the cable company's $40 billion takeover of Time Warner Cable in a sign of potential hurdles in the path of a deal that faces scrutiny from antitrust authorities.

Reed Hastings, Netflix chief executive, used a quarterly earnings letter to outline the company's opposition to the deal, claiming it would give Comcast too much control of high-speed internet provision in the U.S.

"If the Comcast and Time Warner Cable merger is approved, the combined company's footprint will pass over 60 percent of U.S. broadband households... with most of those homes having Comcast as the only option for truly high-speed broadband," he wrote.

"We respectfully think it's not in the public interest to have one company control a majority of U.S. residential internet [provision]," he told the FT. "Our view is that the best remedy is to block the merger."

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Comcast hit back, saying in a statement that Netflix's opposition was based on "inaccurate claims and arguments".

Netflix claimed in the earnings letter that the combined Comcast-Time Warner Cable would "possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers".

Netflix recently struck a deal with Comcast to pay the cable group an undisclosed fee for "interconnection" – effectively connecting its streaming film and television service with Comcast's internet network to ensure faster access. It later accused Comcast and other big internet providers of using their "market position" to impose tolls for access to their networks, hindering online video operators' ability to provide a quality service.

Netflix has raised concerns about the Comcast-Time Warner Cable deal hindering "net neutrality" – the principle that ensures telecoms groups and internet providers charge the same rates for data and content services regardless of the amount of data being downloaded or streamed.

"Netflix is free to express its opinions," Comcast said in its statement. "But they should be factually based. And Netflix should be transparent that its opinion is not about protecting the consumer or about net neutrality. Rather, it's about improving Netflix's business model by shifting costs that it has always borne to all users of the internet and not just to Netflix customers."

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Mr Hastings' comments on Monday came as Netflix revealed its subscriber base had grown to more than 48 million, with 4 million people joining its service during the quarter.

It added that it planned to increase the price of its monthly subscriptions. "Our current view is to do a one or two-dollar increase, depending on the country, later this quarter for new members only," said Mr Hastings. US subscription is currently $7.99 per month.

Monthly payments for existing members would stay the same for a "generous time period", he added.

Netflix expects subscriber growth to slow in the second quarter, in line with previous years and seasonal trends. It expects its international business to be profitable by the end of the fiscal year but said it would plough those profits into new territories.

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The company is known to be looking at launching a service in France and Germany. Netflix already operates in Canada, the UK, Ireland and Latin America, as well as the U.S.

"We are approaching 50 million global members, but that is far short of HBO's 130 million," wrote Mr Hastings, referring to the Time Warner-owned premium cable network. "We are eager to close the gap."

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Netflix subscriptions have been boosted by the company's original series, such as the second series of House of Cards starring Kevin Spacey, and Orange is the New Black.

Revenues for the quarter rose to $1.27 billion, compared with $1.02 billion in the comparable quarter last time. Net income increased from $2.7 million to $53.1 million. Earnings per share rose from $0.05 to $0.86.

Comcast's proposed takeover of TWC has also angered Charter Communications, the cable TV operator in which John Malone's Liberty Media owns a 27 percent stake.

Charter had hoped to acquire TWC and spent months pursuing it. It recently filed legal documents contesting the proposed merger, claiming that the deal had been subject to a "flawed process".

Netflix shares were up close to 6 percent to $368 in after-market trading.

—By Matthew Garrahan, The Financial Times

Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.